IPO Outlook: Is Ollie's Bargain Outlet Holdings A Steal For Investors?

Discount retailer Ollie’s Bargain Outlet Holdings Inc OLLI plans to raise $153 million in its IPO, Thursday, July 16. Since 1982, Ollie’s exhibits fast store and sales growth and is a profitable company.

The retailer plans to offer 8.9 million shares at a price range of $13 to $15 per share. Ollie’s will list on the NASDAQ under the ticker OLLI. At the midpoint of the range, the company would have a market cap of $845 million.

A Closer Look At Ollie's

Ollie’s opened in 1982 as a big discount retailer of closeout brand name merchandise in Pennsylvania by co-founder Mark Butler based on the idea that “everyone in America loves a bargain.” Ollie’s offers customers a large, ever-changing selection of brand name products that includes housewares, food, books, stationary, bed and bath, floor coverings, toys and hardware.

Related Link: Retail Sales Preview: Another Strong Month?

What makes the company unique among other discount retailers is Ollie’s unique shopping experience. According to its S-1, “Our differentiated go-to market strategy is characterized by a unique, fun and engaging treasure hunt shopping experience, compelling customer value proposition and witty, humorous in-store signage and advertising campaigns.

These characteristics seem to work, as the company experiences rapid growth and strong, consistent performance evidenced by its store count expansion from 96 to 187 stores across 16 states in the U.S. as of June 30 2015.

Business Model

Ollie’s core business model centers on growing its store base, which is ultimately where revenue and profitability growth will come from; increasing its offerings of bargains; leveraging and expanding Ollie’s Army (its customer loyalty program of 5.2 million members). The company has two distribution centers in York, Pennsylvania and Commerce, Georgia, which it believes can support 375 to 400 stores. It expects to open 25 to 30 stores in 2015.

Ollie’s was acquired for a majority stake by private equity firm CCMP Capital Advisors LLC in August 2012 for a 71.8 percent stake.

Related Link: Interactive Brokers Awarded Best Retail Platform By FX Week

Financials

Ollie’s growth has been strong over the years with increases in revenue and store openings. Between 2010 and 2014, revenue increased from $335 to $637 million. Revenue in Q1 2015 grew by 20.9 percent from $134 to $162 million. Since 2010, Ollie’s new stores have generated an average of $3.9 million in net sales in their first full year of operations and produced an average payback period of less than two years.

Ollie’s operates with a net gain during its above growth in revenue years. From 2010 to 2014, Ollie’s net income grew from $19.1 million to $26.9 million in 2014. Net income grew by 53.9 percent from $4.33 million Q1 2014 to $6.67 million in Q1 2015.

As of May 2, 2015, Ollie’s has $4.05 million in cash and total assets, and liabilities of $925 million and $501 million, of which $320 million is debt.

The two largest shareholders are private equity firm CCMP and Ollie’s President and CEO, Mark Butler. CCMP will see its 71.8 percent equity stake drop to 60.6 percent, and Mark Butler’s 28.9 percent stake will drop to 24.5 percent.

Looking Forward And Pricing Info

Since its founding over 30 years ago, Ollie’s has had strong revenue and profitability growth amid an expanding store base. The company is backed by a strong management that features its original co-founder as CEO and is backed by private equity firm CCMP.

Ollie’s IPO comes after other retailers earlier this year such as Party City Holdco Inc PRTY and Etsy Inc ETSY. Private equity-backed Party City had its IPO in April, and its shares rose 20 percent from its initial price of $17. Currently, Party City is up over 23 percent. Etsy priced at $16 and opened at $31 a share. Since its debut, the company’s gains have fallen and is just a percent over its April IPO price.

Ollie’s expects the net proceeds from the offering to be $113.4 million and plans to use the proceeds to repay $113.4 million in debt, of which $50.0 million will be used to repay borrowings under its revolver and $63.4 million will be used to repay a term loan.

The main underwriters for the offering include JPMorgan, Jeffries and Bank of America Merrill Lynch. Ollie's will offer 8.9 million shares at an expected range of $13 to $15 per share on the NASDAQ under the ticker OLLI. Pricing for the issue is expected to occur Wednesday night.

Related Link: Evercore Analyzed 16 Years Of Biotech IPO Data

Other Offerings

Thursday, July 16

• BioCardia Inc BCDA will offer 3.9 million shares at an expected price range of $12 to $14 per share through Cantor Fitzgerald & Co, Roth Capital Partners and Maxim Group.
• Jupai Holdings Limited JP will offer 5.9 million shares at an expected price range of $10 to $12 million per share through Credit Suisse and China Renaissance Partners.
• Ollie’s Bargain Outlet Holdings Inc OLLI will offer 8.9 million shares at an expected range of $13 to $15 per share through JPMorgan, Jeffries and Bank of America Merrill Lynch.
• ProNAi Therapeutics Inc DNAI will offer 6.7 million shares at an expected range of $14 to $16 per share through Jeffries and Bank of America Merrill Lynch.

Friday, July 17

• Chiasma IncCHMA will offer 5.4 million shares at an expected price range of $13 to $15 per share through Barclays and Cowen and Company.
• MCBC Holdings MCFT will offer 6.1 million shares through $13 to $15 per share through Baird, Raymond James and Wells Fargo Securities.
• Ooma Inc OOMA will offer 5.0 million shares at an expected price range of $16 to $18 per share through Credit Suisse, Bank of America Merrill Lynch and JMP Securities.
• Rapid7 RPD will offer 6.5 million shares at an expected price range of $14 to $15 per share through Morgan Stanley and Barclays.

Image Credit: Public Domain